Auto lenders are likely to tighten underwriting standards to stave off “credit washing,” a type of fraud that has become more popular amid an increase in data breaches, LexisNexis analysts told Auto Finance News.
Credit washing occurs when a borrower disputes negative informationin a credit report, prompting the agency to “clean,” or temporarily delete, the information from the report and, ultimately, boost the borrower’s credit score.
In the time it takes for the lender to resolve the dispute, a borrower may apply for a loan with the higher credit score, typically going undetected by lenders.
Credit washing creates a higher risk to a lender’s portfolio due to the miscalculation of the risk associated with a given borrower. “Once you’ve booked the loan and the consumer has the car, now it’s just a matter of time before someone who fraudulently obtained that car is going to default,” said Ankush Tewari, vice president of credit risk strategy at LexisNexis.
Auto lenders are at a disadvantage detecting credit washing, Tewari said, since auto finance relies on traditional identity-confirmation methods, such as tracking address and salary history. However, many fraud prevention tools apply to digital marketplaces, and auto lenders must depend on other risk assessments at application.
“What lenders need to do at the point of underwriting is look at the coherence of an identity,” said LexisNexis Vice President of Global Analytics Jeffrey Feinstein.
Specifically, lenders might consider sharing fraud data in a common repository, Tewari said. They could also incorporate non-credit bureau scores in their underwriting models, including public and private data, such as utility bills, education history, and licensing documents.
Automotive OEMs rate vehicle performance by the time it takes to go from zero to 60 in seconds. This is a measure of energy conversion – fuel, spark, movement. While this is a mechanical situation, a comparison can be made to business response times. While fuel is a potential auto loan customer, the spark is a call from a dealer partner, and movement is how quickly your lending team responds to lock down the deal. Have you measured your lending team’s zero-to-60 response time? In this hyper-competitive lending climate, response time truly means the difference between a win and a lost opportunity.
A recent report, published by Auto Finance News’ parent company Royal Media, analyzed 6,200 dealer evaluations to identify core traits which prompt dealers to choose one lender over another. One component of the report tracked callback time. On average, credit analysts returned calls in 65 minutes. Prime loan applications generated a response time within 56 minutes. Subprime application response time lagged to within 75 minutes, according to the report. In comparison to credit unions, banks, and finance companies, captives had the fastest callback time at 62 minutes.
Is there a distinct difference in a lender’s response time based on a customer’s creditworthiness? Of course, there could be extenuating circumstances impacting these response times. Is the type of application outside the lender’s target portfolio? Is the call coming from a preferred dealer who offers only prime applications to specific institutions? The data can be sliced in numerous ways. However, given the large sample size, the report bears attention.
Beyond the phone response time, dealers also voiced their opinions on “partner performance,” including criteria such as accessibility, information-sharing, honesty, professionalism, sincerity, intuitiveness, and an upbeat attitude. It’s no longer enough to have the best rates in town. Lenders must also be excellent partners in order to secure the best deals.
While these soft skills can be difficult to measure, they are vital to building successful relationships with dealer partners. Additionally, it’s imperative that you address the question of whether you are providing tangible value to both dealers and consumers. One of the best ways to accomplish this is with complimentary consumer protection products, such as a limited powertrain warranty, vehicle service contracts, GAP, tire and wheel protection, paintless dent protection, or vehicle return protection.
Structuring your loans with strategic F&I products makes it possible for dealers to increase their PRU through upsell opportunities, which in turn:
Attracts and retains dealership partners
Increases year-over-year auto loan volume and financial control
Expands per month income
Reduces default rates
Decreases repossessions and collection costs
The bottom line is dealers want a partner that has their best interest at heart. One dealer comment in the report stated, “I would choose the hard-working rep over the bank with the lowest rates that have no interest in building relationships with their dealers.”
So check your team’s response time, reinforce good partner qualities, and be an ally for your dealer partners. Chances are, you’ll win the competition battle in 2019.
With more than 40 years administering consumer protection products and working hand-in-hand with dealers across the U.S., EFG Companies knows how to structure your loans to be more attractive in the F&I office with F&I products custom-tailored to match your dealership partners demographics. Contact us today to find out how.
Despite increasing customer requests for 96-month auto loans, Oregon Community Credit Union caps terms at 84 months, Ethan Nelson, Oregon Community Credit Union vice president of credit administration, told Auto Finance News.
While indirect auto lending at the credit union has decreased in the past year, Nelson said the lack of 96-month financing was not a “major factor for originations being down.” He declined to identify the reason for the drop-off, though.
As of Sept. 30, OCCU had $695 million auto loans outstanding, compared with $801 million at yearend 2017, according to financial statements.
Industrywide, average auto loan terms have lengthened as consumers seek more affordable monthly payments amid higher interest rates. So far this year, the average term has been 72 months, according to Edmunds, compared with 69.3 at yearend 2017.
In her first official move as the CFPB’s new director, Kraninger has halted her predecessor’s efforts to change the agency’s name to Bureau of Consumer Financial Protection.
The rebranding could cost the financial services industry an estimated $300 million to implement, according to several reports. The costs would come from having to update disclosure forms, databases, and other materials.
“As of Dec. 17, 2018, I have officially halted all ongoing efforts to make changes to existing products and materials related to the name correction initiative,” Kraninger said in an email to CFPB staff. “For statutorily required reports, legal filings, and other items specific to the Office of the Director, we will use the Bureau seal and the statutory name we were given in Dodd-Frank. The name ‘Consumer Financial Protection Bureau’ and the existing CFPB logo will continue to be used for all other materials.”
In March, former acting Director Mick Mulvaney quietly changed the name of the bureau and even formally changed the bureau’s seal to BCFP. Additionally, the CFPB lettering outside the agency’s headquarters in Washington, D.C., was rearranged to spell BCFP.
Fair’s consumers are only shown cars they can afford on a monthly basis. (Photo by Auto Finance News)
Used-car leasing app Fair is looking to establish itself as a global player in the subscription space on the heels of a $385 million Series B funding led by SoftBank.
“We’re not identifying specific countries for future growth at this time, but are certainly planning to explore scaling our Uber platform internationally to supply cars for their drivers around the world,” a company spokeswoman told Auto Finance News. Since acquiring Uber’s Xchange Leasing portfolio in January, Fair has been financing vehicles for Uber drivers.
The financing signals that the subscription-based model of car ownership is on track to replace the traditional, “decades-old, debt-based system of car-buying,” Fair Chief Executive and Co-Founder Scott Painter said in a press release.
With additional investments from Exponential Ventures, Munich Re Venture’s ERGO Fund, G Squared, and CreditEase, Fair can jumpstart a global growth plan for its partnership with Uber Technologies, Painter said.
The Uber alliance, plus a partnership with dealer groups such as Penske Automotive Group, contribute to Fair’s “partnership model,” which differentiates Fair from other car leasing apps such as AutoGravity, Carvana, and Vroom, Painter told AFN. Fair also partners with Ally Financial Inc.’s dealer base, which sends consumers looking for alternatives to traditional financing to Fair.
Including the SoftBank funding, Fair has raised $500 million in equity this year. Since its inception in August 2017, Fair has provided cars for 20,000 users through its 3,000 dealer partners in 26 markets across the country, the company noted.
DriveItAway, which provide dealers with the tools they need to offer subscription car services for Lyft and Uber drivers, today acquired the technology and assets of Whip. Whip offers subscription-service infrastructure management to car dealerships and fleet owners. Terms of the deal were not disclosed.
DriveItAway also said that it is cutting ties with HyreCar, a peer-to-peer carsharing service that lets car owners rent their idle vehicles to rideshare drivers. The two companies had entered into a partnership over the summer.
DriveItAway Chief Executive John Possumato told Auto Finance News that ending the HyreCar relationship was made so that the company could focus on working with dealers. “When [Whip] reached out to me it turned out it has a business model that’s more consistent with the goals I have,” Possumato said. The alliance with HyreCar “worked out well, but it wasn’t specifically focused on the dealer,” Possumato said.
The Whip technology team, led by Adam Potash, will join DriveItAway.
DriveItAway is interested in partnerships with lenders to take the company “to the next level,” Possumato said, noting the company is looking to partner with Westlake Financial Services to fund its wholesale vehicles. Westlake did not immediately respond a request for comment.
Premier Financial Services, an exotic, luxury, and vintage vehicle leasing provider, is pushing back the launch of its mobile app for dealers to next year, according to Mitch Katz, the company chief executive. Katz told AFN in January that the app would launch in 2018.
The mobile app, once available, will allow dealers in the showroom to put together quotes for customers right from their smartphones. “Within the industry, [dealers] are on their phones all the time,” Katz said. Once the app becomes available, “if they’re speaking with a client in the showroom, they [won’t] have to sit down at a desktop and create a quote, they can just pull out their phones, plug in a few parameters and hit a button.” Dealers also will be able to email information to customers when they leave the showroom.
Separately, an outward-facing feature of the app will give customers the ability to request information on their current leases, such as payoffs and copies of documents, and allow them to ask for quotes on a new lease.
Premier Financial is working with an outside developer to create the app, Katz said, although he declined to name the company.
Katz said the reason the app wasn’t ready this year is because the company was so focused on its growth. Premier Financial Services saw a 22% year-over-year increase in leased units this year, according to Katz, who said back in January that the company was planning for 10% growth. Resources shifted to support and train sales managers as volume increased, Katz said.
Ford Motor Credit is expected to close its fourth auto securitization on December 21, according to presale reports.
The transaction, backed by a $500 million pool of revolving floorplan accounts, is 31.7% smaller than the captive’s last securitization — $732.2 million of notes — which was issued in November.
However, the transaction has a 10-year revolving period with an expected final payment date on Nov. 15, 2028, compared with three years for the November issuance.
Collateral consists of receivables secured by vehicles from revolving floorplan accounts offered by Ford Credit to Ford dealers, according to S&P Global Ratings. Each receivable is a dealer obligation to repay the loan amount, which dealers typically repay as they sell the underlying vehicle, according to S&P.
The trust’s portfolio consists of 3,163 designated dealer accounts with an average dealer balance of $5.7 million per account as of September, according to S&P. Also, the captive’s trust has an estimated $18.04 billion in principal receivables.
Underwriters for the issuance include Citigroup Global Markets, Barclays Capital, Goldman Sachs, and J.P. Morgan Securities.
KAR Auction Services’ plan to acquire Belgium-based counterpart CarsOnTheWeb (COTW) will position the U.S. company to compete in the international remarketing arena.
It is also likely to spark technology enhancements for the combined entity, said Robert W. Baird & Co. analyst Craig Kennison. The $103 million deal — slated to close in the first quarter of 2019 — should have minimal impact on North American used-car prices, he added.
Rather, “it should only provide more resources to enhance the experience in North America,” he said. Currently, KAR operates in the U.S., Canada, Mexico, and the U.K. The acquisition will expand KAR’s footprint to include Belgium, France, Germany, Italy, the Netherlands, and Spain.
“More cars equal more revenue — and more revenue equals more resources to invest in the next generation of remarketing tools,” Kennison told AFN in an email. The deal will also provide the Carmel, Ind.-based auction firm with a cross-border automotive remarketing platform that will “instantly anchor KAR in the international marketplace,” KAR Chief Executive Jim Hallett said in a press release.
Specifically, COTW’s VAT-compliant payment, document transfer, and post-sales processes will give KAR a strong foothold to compete in Europe, said KAR spokeswoman Gene Rodriguez. “The biggest challenges for European cosigners are cross-border transactions and logistics,” she said.
KAR has steadily been building its digital capabilities. Last month, it acquired Reno, Nev.-based Clearplan, a digital platform for repossession workflow and logistics management. In April 2017, it bought CarCo Technologies Inc., an aggregator of automotive retail, pricing, registration, and economic data, for $43 million.
Yearend serves as a time for giving back, and one lender is doing its part.
Ally Financial said it is donating about $50,000 to help dealership employees and communities affected by hurricanes, fires, floods and other hardships.
“For those dealers who have weathered particularly challenging circumstances, some extra support can boost the wellbeing of their employees, businesses, and communities,” said Doug Timmerman, president of Ally Auto Finance, in a statement. “Ultimately, we owe our success to our customers and this is about giving back to our dealer customers to show how much we appreciate them.”
Among the donations Ally said it made this month:
Gift cards to cover holiday meals for some 50 employees at five North Carolina dealerships whose homes were damaged by Hurricane Florence.
Gift cards for 25 employees at McGuire Auto Group of Little Falls, N.J., whose homes and workplaces were damaged by summer flash floods.
Contributions to employees of Alma Chrysler, Jeep, Dodge, Ram, a dealership in Alma, Mich., that was destroyed by fire in November. Ally is also donating to local charities, including Alma Salvation Army, on behalf of the dealer.
Last year, Ally employees volunteered more than 17,000 hours, and the company donated $800,000 through this program, the company noted.
